Estimation of Internal Rate of Return for Battery Storage Systems with Parallel Revenue Streams: Cycle-Cost vs. Multi-Objective Optimisation Approach

Jura Jurčević, Ivan Pavić, Nikolina Čović, Denis Dolinar and Davor Zoričić
Additional contact information
Jura Jurčević: Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia
Ivan Pavić: Faculty of Electrical Engineering and Computing, University of Zagreb, 10000 Zagreb, Croatia
Nikolina Čović: Faculty of Electrical Engineering and Computing, University of Zagreb, 10000 Zagreb, Croatia
Denis Dolinar: Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia
Davor Zoričić: Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia

Energies, 2022, vol. 15, issue 16, 1-17

Abstract: This paper assesses the profitability of battery storage systems (BSS) by focusing on the internal rate of return (IRR) as a profitability measure which offers advantages over other frequently used measures, most notably the net present value (NPV). Furthermore, this study proposes a multi-objective optimisation (MOO) approach to IRR estimation instead of relying on the simple linear optimisation and compares the results to the popular linear optimisation with battery cycle-cost penalty. The analysis is conducted under perfect foresight conditions by considering multiple revenue streams: arbitrage trading in the day-ahead and intraday markets, peak shaving, participating in the primary reserves market, and from photovoltaic (PV) power-generation unit. Data are collected for the German power market for 2017 and 2021. The results show that MOO approach yields similar IRR estimates to the cycle-cost model in 2017. However, higher market volatility and increased electricity prices in 2021 resulted in tangible differences. The analysis shows that, if such conditions are coupled with a low battery capacity price, the MOO method significantly outperforms the cycle-cost model. The effects of battery calendar lifetime and state of charge which decrease profitability are also considered. Nevertheless, a noticeable rise in profitability in 2021 relative to 2017 could provide enough compensation to address the issue of relatively poor viability track record.

Keywords: battery storage viability; cycle-cost; multi-objective optimisation; profitability measures (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1996-1073/15/16/5859/pdf (application/pdf)
https://www.mdpi.com/1996-1073/15/16/5859/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jeners:v:15:y:2022:i:16:p:5859-:d:886682

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().